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One of the best things about being a property investor is the tax benefits. With this checklist, you'll discover all the tax deductions you can claim on an investment property to maximise your investment return.
Unlike your residential home, investment property expenses are tax-deductible. Some of those expenses you can claim in full now, and some you can claim over several years.
There’s a huge range of rental property expenses that you can claim in full as tax deductions in the financial year that you pay for them.
This is one of the most significant tax deductions for many property investors. The more you owe on your investment property loan, the higher this deduction will be.
It’s important to understand that any upfront borrowing expenses that you may be required to pay (like loan application and registration fees) must be deducted over several years.
These expenses include fixing any property items like leaking taps, cracked tiles, faulty electrical wiring, etc, as well as ongoing maintenance costs like lawn mowing, gardening, pest control and cleaning.
It’s important to understand that you can only claim costs that you pay for, not any that your tenant pays for.
This includes expenses like:
· Advertising to find tenants
· Lease preparation costs
· Legal costs to manage tenants
· Body corporate/strata fees (for units/apartments/townhouses)
· Property manager fees (if you pay for a property manager to look after your property and manage your tenants).
Local council rates are charged to property owners for things like garbage collection, water use and community projects.
State and Territory governments across Australia also generally charge land tax on investment properties. Rates vary depending on your location.
Various types of insurance are available for investment properties, including landlord, home and contents and public liability insurance.
These assets can be fully written off in the financial year that you buy them. The cost of property assets worth more than $300 must be claimed over several years.
A quantity surveyor is used by many savvy property investors to help them prepare a depreciation schedule of tax-deductible claims for fixtures, fittings and other property assets that cost more than $300.
If you attend property investment seminars, you can claim the cost of attending against any rental income that you are currently generating. However, it’s important to understand that you can’t claim the cost of attending any of these seminars before you actually buy an investment property.
Loan interest is one of the most significant tax deductions for property investors.
There are also rental property expenses that you can fully claim as tax deductions over several years.
Renovations of an investment property go beyond repairs and maintenance expenses. The significantly add value to the property and may add a new feature or features.
Renovation expenses on an investment property must be depreciated over 40 years at the rate of 2.5% per year.
Property assets costing $300 or more must be depreciated over several years based on a depreciation schedule set by the Australian Taxation Office. Examples of assets that can be depreciated over several years include:
· Carpet
· Curtains
· Air conditioners
· Appliances like fridges and washing machines (if provided)
· Furniture (if provided).
Depreciation rates are different for different assets based on their estimated useful life.
These can include costs like loan set up costs, mortgage broker fees, loan registration fees and lenders’ mortgage insurance. They generally must be depreciated over 5 years.
It’s important to maximise all of your legitimate rental property tax deductions to maximise your return on investment. It’s worthwhile getting professional advice to make sure that you do.
The information provided is general in nature and should not be taken as advice as it does not take into account your personal circumstances, needs or objectives. Your accountant will confirm which deductions apply to your situation.
Contact DPN if you’d like to find out more about property investment, property finance or property management.
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